Industrial Production And Factory Usage Both Dip In January - February 15, 2013

The U.S. Commerce Department released two closely tracked reports within the past hour, and while there were no headline misses in either case, the two issuances were a bit disconcerting.

Specifically, Commerce noted that industrial production eased by a tenth of a percentage point last month, falling from December's upwardly revised gain of 0.4%, to January's nominal 0.1% setback. Initially, the December tally had been estimated to show an increase of 0.3%. In November, that metric had risen by a strong 1.4%, following declines in two of the prior three months.

As to the other issuance, Commerce reported that capacity utilization had edged down from an upwardly revised 79.3% rate during December at the nation's factories to a rate of 79.1% last month. Earlier, usage had been estimated for December at 78.8%. This latest rate of utilization matched the November figure, and was up by 1.6% from January of 2012.

Breaking down the variables a little further, we find that industrial production on the manufacturing side, by far the largest of the three individual categories, fell by 0.4% last month, following impressive gains of 1.7% and 1.1%, respectively, in November and December. Industrial output had weakened from August through October, sandwiching 0.8% declines around an unprepossessing 0.1% increase in September. Meanwhile, mining output fell by 1.0% last month, while the third component, production at the nation's utilities, added 3.5%, presumably on greater use of energy, notably heating, as the weather turned harsh across much of the nation in January. Output by utilities had skidded 4.5% in December, by comparison, as the weather had been unseasonably mild in that month across much of the country.

At the same time, capacity use, as noted, contracted a bit last month, with notable weakness at the manufacturing and mining levels. Not surprisingly, given the findings in production, usage at the nation's utilities rose strongly in January, climbing from 72.3% of capacity in December to an estimated rate of 74.8% in the more recent 31 days.

Overall, the fourth-quarter rate of industrial production is now estimated to have climbed at a 1.9% annual rate. Also, by market category, the production of consumer goods fell by 0.2% in January, following an increase of 0.4% in December. Meantime, the output of business equipment edged up by 0.1% last month, and gained nearly seven percentage points over the past year.

Taken as a whole, this was a less-than-compelling report, and while it was not a game changer, and we still expect the nation's economy to gain some ground this quarter, we doubt whether this presumptive uptick will be very formidable. At best, we see a growth rate that is a bit shy of 2%. More likely, though, we will witness an expansion pace that is between 1% and 2%.